Saudi Arabia reforms for new energy reality

08 May 2016

Riyadh aims for coordinated strategy across energy and utilities sectors

The decision to reform some of Saudi Arabia’s most important ministries, including the oil, and power and water departments, is a central part of Riyadh’s efforts to survive in the new lower oil price reality.

The government reshuffle, one of the most significant and wide-ranging since King Salman bin Abdulaziz al-Saud acceded to the throne in January 2015, comes days after the kingdom launched its ambitious Vision 2030 reform programme.

While the reorganisation of the kingdom’s energy sector, and replacement of Ali al-Naimi as oil minister, had been expected for some time, the swift action following the release of the 2030 economic programme provides evidence of Riyadh’s awareness of how quickly it needs to adapt and diversify its energy sector in the new economic climate.

With the combination of a growing population, increasing at a rate of more than 2 per cent a year, and economic diversification targets into downstream petrochemicals and other industrial sectors putting pressure on the kingdom’s power and water sectors, the newly created ministries will face a stiff challenge to reform and develop the region’s largest utilities market.

The newly established Energy, Industry & Natural Resources Ministry will amalgamate the electricity sector, while the new Environment, Water & Agriculture Ministry will oversee the water sector.

A key challenge for the new energy ‘super ministry’ will be to develop a sustainable energy policy that puts diversification at the heart of the future strategy.

The kingdom currently consumes upwards of 900,000 barrels a day (b/d) of oil for domestic power generation, with more than 50 per cent of the kingdom’s electricity produced from plants burning crude, heavy fuel oil and diesel. With peak demand for electricity expected to almost double by 2032, it is vital that new methods for producing power are implemented from now.

It was recently revealed that Riyadh has set a target of producing 9.5GW of renewable energy under its Vision 2030 programme, which will be spearheaded by a planned King Salman Renewable Energy Initiative. It is imperative the new energy ministry is able to work closely with the new planned renewables body, and that a framework is established to enable streamlined and effective decision-making.

Bureaucratic procedures and red tape have frequently blighted Saudi Arabia’s previous efforts to reform its energy and utilities sectors, and it is important that such obstructions are removed to allow the new structures to flourish.

While striving to meet the power requirements of its expanding population and industries, Riyadh’s new energy superpower must ensure that the kingdom’s most valuable resource is harnessed for maximum benefit.

In addition to developing new strategies to produce electricity, Riyadh faces a significant challenge of boosting efficiency throughout the electricity and water sectors.

While boosting efficiency efficiency of its generation and transmission infrastructure on the supply side is important, reducing consumption and wastage on the demand side is equally crucial. The new Environment, Water & Agriculture Ministry will play an important role in setting the parameters and strategy for reducing emissions and improving the efficiency of the country’s utilities networks.

The restructuring of one of the world’s most important energy markets should enable Riyadh to develop a coordinated strategy across its energy and industrial sectors. The amalgamation of power in the new energy ministry can be viewed as an astute move, with the production of electricity inseparable from the production and use of oil and gas.

Now the expected shake-ups have been made, it is vital the newly created bodies are able to move ahead with delivering the Vision 2030 programme as quickly as possible. With the kingdom continuing to dip into its state reserves at an alarming rate, time is of the essence.

Andrew Roscoe

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